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CONTEXT AND TRENDS
Since simmering sectarian tensions escalated into mass protests in early 2011, Bahrain has barely been out of the press. In the crackdown, which ensued, the state was accused of a number of human rights violations and internationally its reputation was certainly damaged....

CONTEXT AND TRENDS

Since simmering sectarian tensions escalated into mass protests in early 2011, Bahrain has barely been out of the press. In the crackdown, which ensued, the state was accused of a number of human rights violations and internationally its reputation was certainly damaged. "It's affecting the market, particularly the private sector – foreign direct investment is down," says one partner. All too aware of this, the Royal family is attempting to rebuild the country's image. Its first response was to establish an independent commission to consider the protestors claims and look into how the whole event could have been handled differently. "That got published; criticisms were made of the Bahrain government so the King introduced some legislative reforms," explains one partner.

Chief among the changes were amendments to the constitution. Previously Bahrain used a system similar to the UK with an upper and lower house. Bahrain's Shiite population felt underrepresented in Bahrain's equivalent of the upper house, the Shura council claiming their role was ineffectual. The ongoing reforms are an attempt to redress this balance. "In terms of the international community the report has brought Bahrain some breathing space. Obviously reforms can't take place overnight but they realise that the Bahrain government is trying to do as much as possible to make these constitutional reforms," notes one partner. One interesting suggestion to come out of the national dialogue instigated by the state in the wake of the unrest was to look at the privatisation law to enhance the private sector. "We are looking at the privatisation legislation in relation to best practices compared to the UK, Australia, New Zealand," notes one lawyer. "There are hindrances within the system that shouldn't be there."

While private sector activity into Bahrain is quiet, work on the Government side continues and conversely has been given fresh impetus by the unrest. With one of the protestor's main complaints being a shortage of accommodation, the country's first affordable housing project was pushed to the top of the agenda, achieving commercial close in January 2012. Education, health and infrastructure projects are also being discussed. One lawyer also confirms: "There's already talk of the second affordable housing PPP (public-private partnership), they're putting RFPs out in the market."

On the banking side, local institutions are liquid and have been active. "Despite the rather turbulent times it is still a very active market. There is a very large amount of cross border financing into Saudi," notes one partner. An ongoing trend over the last 18 months has been for refinancing and restructuring work which lawyers predict will continue for "at least the next six months". Although the crisis was never overly pronounced in Bahrain's financial services sector, the Central Bank has been encouraging mergers to strengthen institutions. "We were involved in two potential merger discussions.

M&A activity is low, but this is true for the whole region and has as much to do with the debt crisis and hesitant investors as the Arab Spring. Similarly, equity capital markets work is nonexistent. On the debt side, however, there have been recent issues by the state as it attempted to recover economically from the unrest. It launched a €1.5 billion conventional bond in June 2012 which was four times oversubscribed, prompting one commentator to suggest: "It shows there is still confidence in Bahrain from the international community."